TAXATION 388
TEST 3
Chapters 12, 13, 14 & 33
Notes made in the 2020 academic year
Tax email address:
TABLE OF CONTENTS
Chapter 12 ................................................................................................................................................... 4
SPECIAL DEDUCTIONS AND ASSESSED LOSSES ................................................................................... 4
12.1 Overview .......................................................................................................................................... 4
12.2 Employee-related expenses ........................................................................................................... 4
12.2.1 Restraint of trade payments .......................................................................................................... 4
12.2.2 Fund contributions by employers................................................................................................. 6
12.2.5 Annuities to former employees and their dependants ............................................................. 6
12.3 Legal expenses ................................................................................................................................ 7
12.4 Repairs ............................................................................................................................................. 9
12.4.2 Occupied for the purpose of trade or in respect of which income is receivable .................. 9
12.5 bad Debt........................................................................................................................................ 10
12.9 Donations to public benefit organisations and other qualifying beneficiaries.......................... 11
12.12 Assessed Losses .......................................................................................................................... 12
12.12.1 Balance set off by taxpayers other than companies.............................................................. 14
12.12.2 Balance set off by companies ................................................................................................... 15
12.12.3 From trade carried on outside South Africa ........................................................................... 16
Comprehensive Example ...................................................................................................................... 17
Chapter 13 ................................................................................................................................................. 19
CAPITAL ALLOWANCES AND RECOUPMENTS..................................................................................... 19
13.1 Overview ........................................................................................................................................ 19
13.2 Core concepts ............................................................................................................................... 20
13.2.1 Connected persons NB .................................................................................................................. 20
13.2.2 Machinery, plant, implement, utensil or article ........................................................................ 21
13.2.3 Process of manufacture................................................................................................................ 22
1
, 13.2.4 Depreciable assets ....................................................................................................................... 22
13.3 Allowances on movable assets ..................................................................................................... 23
13.3.1 Wear-and-tear allowance............................................................................................................. 23
13.3.3 Movable assets used by manufacturers .................................................................................... 25
13.3.4 Small business corporations ........................................................................................................ 27
Please note ................................................................................................................................................ 30
13.4 Allowances on immovable assets................................................................................................. 31
13.4.1 Buildings and improvements: Annual allowance ..................................................................... 31
13.4.3 Residential units ............................................................................................................................ 34
13.4.5 Commercial buildings .................................................................................................................. 36
13.7 Leases ............................................................................................................................................ 38
13.7.1 Lease premiums ............................................................................................................................ 38
13.7.2 Leasehold improvements ............................................................................................................ 40
13.7.3 Relief for lessor (Lessor’s special allowance) ............................................................................. 42
13.8 Intellectual property ...................................................................................................................... 44
13.8.1 Legislation for expenditure incurred on or after 1 Jan 2014 but before 1 Oct 2022 ......... 44
13.10 Recoupments .............................................................................................................................. 45
13.10.1 General recoupment provision ................................................................................................. 46
13.10.2 Donations, asset in specie distributions, the disposal of assets to connected persons
and change of use to trading stock ....................................................................................................... 50
13.11 Alienation, loss or destruction allowance .................................................................................. 52
13.12 Summary ...................................................................................................................................... 54
Disposals of capital assets ....................................................................................................................... 54
Chapter 14 ................................................................................................................................................. 55
TRADING STOCK ...................................................................................................................................... 55
14.1 Overview ........................................................................................................................................ 55
14.2 Closing stock ................................................................................................................................. 56
14.3 Opening stock ............................................................................................................................... 57
14.4 Cost price of trading stock ........................................................................................................... 59
Capital asset becomes trading stock (change in use) ......................................................................... 59
14.5 Trading stock acquired for no consideration .............................................................................. 60
14.6 Goods taken from stock or distributed as dividend in specie.................................................... 61
Chapter 33 ................................................................................................................................................. 64
TAX ADMINISTRATION ............................................................................................................................ 64
33.1 Overview ........................................................................................................................................ 64
33.2 Tax administration framework ...................................................................................................... 65
33.2.2 Core concepts used throughout the TAA ................................................................................. 65
33.2.4 Non-compliance and offences .................................................................................................... 65
33.3. Tax compliance and collection .................................................................................................... 66
33.3.1 Registration and changes in particulars..................................................................................... 67
33.3.2 Tax returns ..................................................................................................................................... 67
33.3.3 Document retention ..................................................................................................................... 67
2
, 33.3.5 ASSESSMENTS ............................................................................................................................. 67
33.3.6 Penalities ........................................................................................................................................ 68
33.5 Dispute resolution ......................................................................................................................... 70
33.5.1 Overview of the process .............................................................................................................. 70
33.5.2 Burden of proof............................................................................................................................. 71
33.5.3 Payment of tax pending objection or appeal ........................................................................... 72
33.5.5 Objection against assessment .................................................................................................... 72
3
, CHAPTER 12
SPECIAL DEDUCTIONS AND ASSESSED LOSSES
12.1 OVERVIEW
ss 11(a), 11(x) and 23
Apart from the deductions allowed under the general deduction formula in s 11(a), the Act sets out
certain special deductions in s 11(c) to (w).
The purpose of the special deductions is to allow deductions that would not ordinarily be available
under the GDF, either because they are of a capital nature or because they cannot easily satisfy the
restrictive test that the expenditure should be incurred in the production of income.
Other sections to note:
o Section 11(x) also brings within the scope of s 11 all other amounts allowed to be deducted
from the income of the taxpayer in terms of any other provision in Part I of the Act, which deals
with normal tax.
o Section 23 prohibits the deduction of certain expenditure and losses
o Section 23B contains a prohibition against double deductions under more than one provision
of the Act
Remember: As a rule, when an amount qualifies for deduction under both the GDF and a special deduction, it must
be deducted only under the special deduction, even if this deduction if more limited than the deduction that would
have been allowed under the GDF.
o Section 23H limits the amount that may be deducted in any YoA for certain expenditure that
will produce a benefit only in later years of assessment (see chapter 6)
12.2 EMPLOYEE-RELATED EXPENSES
12.2.1 RESTRAINT OF TRADE PAYMENTS
s 11(cA)
pg 72
Restraint of trade payments are normally capital in nature (see Chapter 3), but a special inclusion may
apply for the recipient (see Chapter 4). The recipient is taxed on the receipt in terms of par (cA) and
(cB) of the Gross Income definition.
4
TEST 3
Chapters 12, 13, 14 & 33
Notes made in the 2020 academic year
Tax email address:
TABLE OF CONTENTS
Chapter 12 ................................................................................................................................................... 4
SPECIAL DEDUCTIONS AND ASSESSED LOSSES ................................................................................... 4
12.1 Overview .......................................................................................................................................... 4
12.2 Employee-related expenses ........................................................................................................... 4
12.2.1 Restraint of trade payments .......................................................................................................... 4
12.2.2 Fund contributions by employers................................................................................................. 6
12.2.5 Annuities to former employees and their dependants ............................................................. 6
12.3 Legal expenses ................................................................................................................................ 7
12.4 Repairs ............................................................................................................................................. 9
12.4.2 Occupied for the purpose of trade or in respect of which income is receivable .................. 9
12.5 bad Debt........................................................................................................................................ 10
12.9 Donations to public benefit organisations and other qualifying beneficiaries.......................... 11
12.12 Assessed Losses .......................................................................................................................... 12
12.12.1 Balance set off by taxpayers other than companies.............................................................. 14
12.12.2 Balance set off by companies ................................................................................................... 15
12.12.3 From trade carried on outside South Africa ........................................................................... 16
Comprehensive Example ...................................................................................................................... 17
Chapter 13 ................................................................................................................................................. 19
CAPITAL ALLOWANCES AND RECOUPMENTS..................................................................................... 19
13.1 Overview ........................................................................................................................................ 19
13.2 Core concepts ............................................................................................................................... 20
13.2.1 Connected persons NB .................................................................................................................. 20
13.2.2 Machinery, plant, implement, utensil or article ........................................................................ 21
13.2.3 Process of manufacture................................................................................................................ 22
1
, 13.2.4 Depreciable assets ....................................................................................................................... 22
13.3 Allowances on movable assets ..................................................................................................... 23
13.3.1 Wear-and-tear allowance............................................................................................................. 23
13.3.3 Movable assets used by manufacturers .................................................................................... 25
13.3.4 Small business corporations ........................................................................................................ 27
Please note ................................................................................................................................................ 30
13.4 Allowances on immovable assets................................................................................................. 31
13.4.1 Buildings and improvements: Annual allowance ..................................................................... 31
13.4.3 Residential units ............................................................................................................................ 34
13.4.5 Commercial buildings .................................................................................................................. 36
13.7 Leases ............................................................................................................................................ 38
13.7.1 Lease premiums ............................................................................................................................ 38
13.7.2 Leasehold improvements ............................................................................................................ 40
13.7.3 Relief for lessor (Lessor’s special allowance) ............................................................................. 42
13.8 Intellectual property ...................................................................................................................... 44
13.8.1 Legislation for expenditure incurred on or after 1 Jan 2014 but before 1 Oct 2022 ......... 44
13.10 Recoupments .............................................................................................................................. 45
13.10.1 General recoupment provision ................................................................................................. 46
13.10.2 Donations, asset in specie distributions, the disposal of assets to connected persons
and change of use to trading stock ....................................................................................................... 50
13.11 Alienation, loss or destruction allowance .................................................................................. 52
13.12 Summary ...................................................................................................................................... 54
Disposals of capital assets ....................................................................................................................... 54
Chapter 14 ................................................................................................................................................. 55
TRADING STOCK ...................................................................................................................................... 55
14.1 Overview ........................................................................................................................................ 55
14.2 Closing stock ................................................................................................................................. 56
14.3 Opening stock ............................................................................................................................... 57
14.4 Cost price of trading stock ........................................................................................................... 59
Capital asset becomes trading stock (change in use) ......................................................................... 59
14.5 Trading stock acquired for no consideration .............................................................................. 60
14.6 Goods taken from stock or distributed as dividend in specie.................................................... 61
Chapter 33 ................................................................................................................................................. 64
TAX ADMINISTRATION ............................................................................................................................ 64
33.1 Overview ........................................................................................................................................ 64
33.2 Tax administration framework ...................................................................................................... 65
33.2.2 Core concepts used throughout the TAA ................................................................................. 65
33.2.4 Non-compliance and offences .................................................................................................... 65
33.3. Tax compliance and collection .................................................................................................... 66
33.3.1 Registration and changes in particulars..................................................................................... 67
33.3.2 Tax returns ..................................................................................................................................... 67
33.3.3 Document retention ..................................................................................................................... 67
2
, 33.3.5 ASSESSMENTS ............................................................................................................................. 67
33.3.6 Penalities ........................................................................................................................................ 68
33.5 Dispute resolution ......................................................................................................................... 70
33.5.1 Overview of the process .............................................................................................................. 70
33.5.2 Burden of proof............................................................................................................................. 71
33.5.3 Payment of tax pending objection or appeal ........................................................................... 72
33.5.5 Objection against assessment .................................................................................................... 72
3
, CHAPTER 12
SPECIAL DEDUCTIONS AND ASSESSED LOSSES
12.1 OVERVIEW
ss 11(a), 11(x) and 23
Apart from the deductions allowed under the general deduction formula in s 11(a), the Act sets out
certain special deductions in s 11(c) to (w).
The purpose of the special deductions is to allow deductions that would not ordinarily be available
under the GDF, either because they are of a capital nature or because they cannot easily satisfy the
restrictive test that the expenditure should be incurred in the production of income.
Other sections to note:
o Section 11(x) also brings within the scope of s 11 all other amounts allowed to be deducted
from the income of the taxpayer in terms of any other provision in Part I of the Act, which deals
with normal tax.
o Section 23 prohibits the deduction of certain expenditure and losses
o Section 23B contains a prohibition against double deductions under more than one provision
of the Act
Remember: As a rule, when an amount qualifies for deduction under both the GDF and a special deduction, it must
be deducted only under the special deduction, even if this deduction if more limited than the deduction that would
have been allowed under the GDF.
o Section 23H limits the amount that may be deducted in any YoA for certain expenditure that
will produce a benefit only in later years of assessment (see chapter 6)
12.2 EMPLOYEE-RELATED EXPENSES
12.2.1 RESTRAINT OF TRADE PAYMENTS
s 11(cA)
pg 72
Restraint of trade payments are normally capital in nature (see Chapter 3), but a special inclusion may
apply for the recipient (see Chapter 4). The recipient is taxed on the receipt in terms of par (cA) and
(cB) of the Gross Income definition.
4
